If I take a nap, I die, ”DJ Koh, president of the IT and mobile communications division at Samsung, is reported to have said in New Delhi in March. Describing India’s business environment on the sidelines of the Galaxy S10 launch, he elaborated, “If there’s anything to learn from competitors, we are learning. (There is always the risk that our) competitors are faster than us, or well-received by local consumers.”
If Samsung India Electronics is learning from the competition, it’s taking a really long time and the risks are multiplying.
Since the fourth quarter of 2017, when Counterpoint Research pegged China’s Xiaomi the number one brand in India, Samsung has had to settle for the runners up spot despite a much wider product range across multiple price points.
Even the likes of OnePlus — with a single model every year in the Rs 30,000-plus segment and deft use of social media and online channels — have challenged Samsung’s premium hegemony.
For 24 quarters prior to the fourth quarter of 2017, Samsung was the undisputed leader. Mobile handsets comprise 62.9% of its Rs 59,370-crore (as of March 2018) business in India. Another 14.14% is from sale of network equipment. The rest comprises consumer durables — seen as less challenging and more stable than smartphones —where Samsung is losing ground. Barring microwaves, for which volumes in India are not much to speak about, Samsung has had to face brutal competition, particularly in mass market segments — like sub-40 inch television sets, 165 litre refrigerators, 1.0-1.5 tonne air-conditioners and so on.
Samsung is as much a study of an early mover that finds itself caught in quicksand, as of conservative South Koreans versus aggressive Chinese; online versus offline; making itself relevant to the millennials while not losing grip on ‘loyal’ buyers — a portfolio which boasts of a galaxy of products but where stars are getting difficult to spot. Navkender Singh, research director, IDC, says, “Samsung so far has been resting on its laurels. And it felt that aggression by China-based brands is a flash in the pan.”
OSTRICH & THE HARE
To its credit, Samsung has deep capabilities — research and development (R&D) strength, innovation, strong offline network, retail relationships with the likes of Croma, Vijay Sales, Reliance; deep pockets and scale to ward off competition. But some of these very strengths are becoming weaknesses. Like an analyst says, “Samsung (and South Koreans in general) are too profit- and margin-conscious compared to their Chinese counterparts and hence, avoid price wars.”
Besides, Samsung takes too long to react to market changes. For example, only in January 2019 did it launch the Galaxy M Series in the affordable- to mid-market range to take on growing competition from the Xiaomi Redmi models and other popular brands. Faisal Kawoosa, chief analyst, TechArc, says, “South Korean brands are more R&D driven and think more long term. The Chinese are quicker to respond to market changes.”
Pankaj Mohindroo, chairman, Indian Cellular and Electronics Association (ICEA), says, “The Indian mobile phone market has gone through tremendous consolidation. Samsung’s value market share has dropped from over 40-45% in 2013-14, to current levels of 20-25%.”
Dinkar Ayilavarapu, partner, Bain & Company, divides the space in which Samsung operates into two — experiential and functional. If in the former, Samsung has been slow to react, in the latter, it has tried to duck ostensible scaling which is an inevitable result of price competition. “There are two clear tiers — a top tier of old western, Japanese or South Korean players and the (other of) insurgent Chinese. Samsung fits into the top tier. Older players have the brand, whereas the insurgents load up on features but don’t necessarily have the brand (yet). Almost all categories have seen rapid price declines of late, which is an upshot of the Chinese emergence,” he says.
Even its results have been a challenge for Samsung. Though revenues increased, actual realisations suffered dramatically, says Anchal Agarwal, cofounder, Tofler, a business intelligence platform.
Samsung and Xiaomi command 52% of the Indian smartphone market. According to Counterpoint, between the fourth quarters of 2016 and 2018, Xiaomi increased share of smartphone shipments from 9% to 27%, while Samsung dropped from 24% to 20%. In the premium category (Rs 30,000-plus), Samsung led in 2018 with 34% market share. But here too, competition is intensifying. Anshika Jain, research analyst, Counterpoint, says, “Word of mouth helped OnePlus. The social media strategy is working well for them.”
Even in the used phones market, where Samsung was once sought after, the pecking order is Xiaomi, Samsung, Apple, Vivo, Oppo. “Brand loyalty is Samsung’s strength, but users want a better price-to features combination where the Chinese score,” says the head of a re-commerce (used devices) company.
With its Galaxy M Series targeted at millennial buyers, Samsung is selling specs-rich handsets at prices it never attempted earlier. Next, it relaunched the Galaxy A series, targeting millennials and GenZ, attempting to touch $4 billion sales this year from this series alone.
Trade is gung-ho at this sudden aggression. “Samsung is going to go full steam with good models that are selling faster than expected,” said Subhasish Mohanty, chairman at Spice Hotspot, which runs cellphone stores in the North and East.
ONLINE, ON TRACK
Online accounts for around 36% of smartphone sales. The Chinese were first to move online as Samsung watched from the ringside, relying on its large distribution network and retail partnerships. Samsung has now made its online foray but it won’t have the advantage of Xiaomi and OnePlus — the deep discounts that the new ecommerce policy has stopped.
Industry watchers say 2019 will be a decisive year for Samsung in India as it can only win back its leadership in smartphones by improving its share in online sales. As per trackers, Xiaomi has around 50% share in online smartphone sales.
No wonder then, Samsung has decided it will devote significant energy on India’s online business this year. Industry executives say Samsung India has managed to convince Seoul headquarters that the brand will be ready to forsake margins to price aggressively and gain market share.
There’s been some attrition, including retail head Prashant Mani, south & west India sales director Deepak Nakra, products director Sumit Walia, head of distribution channel Vikas Jain and distribution and sales excellence head Bipin Raina, in the past 18 months.
Samsung has entrusted the online challenge to corporate vice-president Asim Warsi (head of the online smartphone business) and consumer electronics head Raju Pullan (also online business for televisions and home appliances).
The last quarter saw sales of almost 2 million units of the Galaxy M series, “but it’s still feeling the heat,” says an expert who wished not to be named.
An industry watcher feels Samsung “lacks a differentiated strategy. For Samsung, the product is the core but the market connect is missing.” For example, Xiaomi, RealMe and Oppo have ‘digital stars’ such as Manu Jain, Madhav Sheth or Tasleem Arif representing them and an active presence on social media. Millennials value this. Data from recent quarters shows consumers are ready to experiment with newer, affordable brands that promise more bang for buck.
However, Pulkit Baid, director at electronics chain Great Eastern Retail, believes, “Samsung still scores higher for brand conscious customers, unlike several other large MNC brands, as a rub-off effect of its smartphones.”
CONSUMER IS KING
But it’s in consumer durables that Samsung is really riding on customer expectations of a better product, with aspects such as energy efficiency, value for money and technology innovations.
Here too, Samsung faces intense competition from old masters and new players alike — IFB and Whirlpool in washing machines, Daikin, Lloyds, Voltas and LG in entry- to mid-level ACs, Xiaomi and TCL in television sets and Midea and Voltas Beko in microwaves.
“Samsung’s strengths include technology, innovation, channel financing and institutional sales. But it is too headquarters-driven. The sales teams are not empowered enough to offer discounts, are late to react, lack flexibility and have a high cost structure,” says an analyst who did not wish to be identified.
In appliances, Samsung trails at number 2, with South Korean rival LG India dominating in categories such as refrigerators and washing machines. Among air-conditioners, the Tata-owned Voltas is the leader, with 23% share, and LG is at second spot, with 16%, as of January 2019, says sales tracker GfK. Samsung has progressively lost share from when it was number 2 in the AC market to around 4.5% now, with brands such as Lloyd, Hitachi, Daikin and Blue Star outpacing it.
The South Korean firm, however, became market leader in microwave ovens in 2016, clocking over 32% share by volume sales, as per Gfk. The lead continued in 2017 and extended to 33-34% last year.
Vishal Mewani, director of Mumbai based retailer Kohinoor Electronics, says online launches will help the overall market and Samsung too, since the brand will now have deeper relationship with ecommerce. “Random online discounting, which was affecting Samsung’s offline business will stop. However, it is also true that the top three TV makers — Samsung, LG and Sony — have been cornered in the entry-segment, or the 32” TV set, by price-aggressive online brands,” he adds. As per industry estimates, the 32-inch contributes half of total TV sales by volume and 35% by value.
“Price competition is still lower in the larger screen segments and Samsung wants to consolidate its share over there. Despite such strong online competition in televisions, Samsung has held its ground and there has been no dip in its TV market share. If anything at all, it should improve this year,” says Mewani.
Industry veteran CM Singh, who has now started his own electronics retail venture CMS Electronic Junction, feels Samsung is still most comfortably placed amongst the biggies in the industry. “Several brands are facing a tough time in categories such as LED televisions from online, but Samsung is coming up with various consumer and dealer schemes and has also taken a price cut in last few months to fight this challenge,” he says.
Singh, who has held leadership roles in LG, TCL and Videocon, said Samsung is addressing every segment of the market, which is working for them. “However, no doubt the online brands are giving intense competition to the big brands and it remains to be seen whether Samsung manages to hold on to its share,” he says.
Over the years, Samsung has seen players come and go — the demise of Nokia (pre-smartphone era), the rise and fall of Indian players Micromax, Lava, Karbonn and even a few Chinese ones like Gionee. But the current crop of Chinese competitors seems to be here to stay.
FLEXING MNC MUSCLE
Beyond profit and loss, Samsung has also become a frontline multinational in lobbying with the government and pushing its agenda. For instance, earlier this year, Samsung successfully pushed the government to extend the deadline for Make in India — for components such as display and touch panels — by a year, threatening to clamp down phone manufacturing in India, including flagship models. This was despite the company investing nearly Rs 5,000 crore in a new plant last year, which would become the world’s largest.
Samsung also shut down its television plant in Chennai last year and started importing from Vietnam to avail zero tax benefits of the free trade agreement (FTA). Though the Centre requested the company several times to restart local manufacturing, it has refused to budge unless import duties on television panels are brought down. Samsung has even shifted high-end AC production to Vietnam after duty was imposed on compressors to promote Make in India. “Some of these decisions are vital for Samsung since it can then pass on tax savings in the form of aggressive pricing. It’s not like they are enjoying savings as margin. For them, it’s to bridge the price gap with the Chinese brigade,” says an industry executive who did not want to be named.
2019 should be a turning point. “The missing piece in Samsung’s strategy is lack of tactical moves. For long, it has watched from the sidelines its market leadership being threatened and even taken away. To succeed, Samsung has to abandon its ostrich stance,” quips a mobile phone industry expert who prefers to remain anonymous.